Who’s To Blame For the Pension Crisis?

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So who’s really to blame for the underfunding crisis in state and local pensions? Dean Baker, no fan of his fellow economists, says they need to man up and shoulder the responsibility:

The real culprits of the underfunded pension funds are the country’s leading economists. Economists from across the political spectrum told the country that we could assume that stocks would provide an average return of 10 percent a year even when the stock bubble was at its peak in 2000. This consensus included the center-left economists in the Clinton administration as well conservative economists. It was treated as absolute gospel in all the plans to privatize Social Security. Both the Congressional Budget Office and the Social Security Administration assumed that the market would give an average of 10 percent nominal returns in their analysis of Social Security privatization proposals.

Given the consensus within the economics profession, who could blame the managers of state and local pension funds for using the same assumption? After all, were they supposed to question the assessments of economists teaching at Harvard and M.I.T.?

And, it does make a difference. If the economists’ projections had been right, $1 billion held in the stock market in 2000 would be worth about $2.5 billion today. Instead, it is worth about $1 billion. In short, if the economists had been right, most of the troubled pension funds would be just fine today.

I don’t think this gets politicians off the hook entirely, but it’s a good point. Economists largely missed the dotcom bust, missed the housing bust, and were wildly wrong about the long-term growth of the bond and equity markets. Maybe we should make up the pension shortfall with a tax on economists?

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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